Posts by: WST Expert 1| Wall St. Training

Re: Liabilities and Interest Expense
Correct. however, we think you are still complicating matters with your distinguishing among "debt" "IBNS" and "debentures". to further clarify your first point, for the most part, only leases play into the exceptions. obviously there might be company-specific factors... Read More

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by WST Expert 1.

added 11 years ago

RE: How do you maximize earnings accretion?
Aside from the favorite answer - SYNERGIES, there are several issues to consider when structuring a transaction to maximize earnings accretion. The first question is to whether to pay with stock, cash or a combination of the two. The next question is what are the relative P/E ratios of the Acquiror ... Read More

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by WST Expert 1.

added 11 years ago

RE: When to normalize IS? Always?
Short answer: normalize ALWAYS (unless you are in equity research building tracking models, then you match reported and adjust separately vs. transaction/deal oriented folks like investment bankers that make adjustments directly in the financials). Please see our Complex Trading Comps video cours... Read More

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by WST Expert 1.

added 11 years ago

Re: Inventory Writedown
Assuming you want to recognize the Inventory Writedown in Year 1 of the projection model: 1) Insert a new line on IS below COGS and call it Inventory writedown of $100 (or whatever amount). Inventory writedowns usually flow thru COGS however, since COGS is a driver of Inventory on the BS, you want ... Assuming you want to recognize the Inventory Writedown in Year 1 of the projection model:

1) Insert a new line on IS below COGS and call it Inventory writedown of $100 (or whatever amount). Inventory writedowns usually flow thru COGS however, since COGS is a driver of Inventory on the BS, you want to keep this extra (one-time) item distinct from COGS. Now, NI should be lower by $100 * (1-T). If you want to report Pro Forma IS figures, you would undo this, but still need the numbers to flow through for the writedown.

2) Inventory down by $100 => this change on an integrated model won't cause an imbalance b/c Working Capital picks up change in Inventory and adjusts cash balance lower by $100; however this is incorrect b/c cash shouldn't change due to inventory writedowns.

3) CFO: add a new line in the non-cash section, under D&A, above working capital items:
Non-Cash inventory Writedown: increase by $100 => this is to adjust for the fact that the $100 of new expense that flows thru IS and RE is a non-cash expense; this causes BS to not balance (correctly so)

4) CFO: increase/decrease in Inventory in working capital
subtract change in inventory by $100 => this is required because your inventory balance on the BS is now $100 less than if you had no writedowns. As such, your change in inventory on CFO is now understated by $100. i.e. if last year INV was $1,000 and this year, it's $2,000, that's a $1K reduction of Cash. But a writedown of Inventory makes this year's new INV balance $1,900 and on CFO, it shows $900 change. But the change really was $1,000 and cash still went down by $1,000 not the new $900. So, make sure the correct change in INV is reflected by subtracting the $100 writedown, so that the $900 change goes back to $1,000 change

Notice, that as a net effect, cash went up by $100 * T because you had a tax savings of that amount since the inventory writedown is tax deductible. If you were doing this on a Pro Forma Adjustments column (i.e. in a stock raise or M&A/LBO), then you would flow this $100 * T through increase in DTA and resulting tax schedule. This wasn't required here because we did this on Year 1 projection and thus "used up" the DTA right away. So in theory, the second the inventory writedown occurs, the correct entries would be:
COGS up $100
RE up $100 * (1-T)
DTA up $100 * T

when the DTA due to this specific inventory writedown is used up:
DTA down $100 * T
Cash up $100 * T
and thus, still makes sense from an accounting debits/credits perspective as to why Cash goes up by $100 * T in our set of entries.

Happy modeling! Read More

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by WST Expert 1.

added 11 years ago

RE: Advanced Financial Modeling - Core Model: Minority Interest
For a quick and dirty minority interest estimate on the balance sheet, you would take the proportionate share of what CME does NOT own and recognize that as the MI liability on the balance sheet. In other words, you would build a separate standalone model for the subsidiary (which is 100% consolidat... Read More

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by WST Expert 1.

added 11 years ago

RE: Quick cost of debt question
Please make sure to post this in the correct forum. Since you are referencing a specific course, in future, please post in the WST Self-Study topics. Answer: Use the YTM of the weighted average YTM of all of that company's existing debt outstanding. Obviously this (and WACC) only applies to going... Read More

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by WST Expert 1.

added 11 years ago

Re: WMT CapEx schedule - All new capex depreciated?
If you would like to make an assumption as to how much is land, or even a salvage value, then you could do that. However, the estimate is relatively immaterial (just look at land as a % of total Gross PPE), unless you are a build-hold-rent real estate developer.

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by WST Expert 1.

added 11 years ago

Re: Asset and Expense Valuation
Correct: for the most part, assets are valued at cost but this valuation framework is undergoing change with both the FASB and IASB pushing firms to move to market value accounting. At present MV is limited to financial instruments.

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by WST Expert 1.

added 11 years ago

Re: Circular reference calculation not refrehsing automatically
Hi, you've violated rule #1 in modeling: No circular references! As we teach in our financial modeling courses, for debt and leases calculations that require a circ, build in a switch for beginning balance (no circ) vs average balance. this is covered extensively in our debt sweep modeling of our ... Read More

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by WST Expert 1.

added 11 years ago

RE: Explain 338(h)10 elections and the impact on a M&A deal.
In a 338(h)(10) election, the transaction is a stock acquisition from a legal perspective but is treated like an asset sale for tax purposes. Thus, the acquiror can depreciate/amortize the full purchase price and experience a step-up in tax basis. The acquiror can also utilize any NOLs to shelter ag... Read More

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by WST Expert 1.

added 11 years ago